- The GRIP is a notional running balance that tracks how much of a private corporation's income was taxed at the higher "general" corporate rate rather than the lower small business rate.
- The mechanism is designed to roughly offset the corporate tax already paid — income taxed more heavily at the corporate level is meant to come with a bigger personal tax break when it's…
- Adds to the pool: - Corporate income taxed at the general rate rather than the small business rate - Certain eligible dividends the corporation itself received from other corporations…
Not every dividend an Ontario corporation pays out gets the same tax treatment in the shareholder's hands. Whether a dividend qualifies as an "eligible dividend" — generally more favourable to the recipient than a "non-eligible" one — depends partly on a running balance the corporation has to track called the General Rate Income Pool, or GRIP.
Most owner-managers never look at their GRIP balance until an accountant flags it, usually right before a dividend is about to be paid. Understanding what it tracks and why it matters makes that conversation a lot less confusing.
What Is the GRIP?
The GRIP is a notional running balance that tracks how much of a private corporation's income was taxed at the higher "general" corporate rate rather than the lower small business rate. That balance represents how much the corporation can pay out as an eligible dividend without running into trouble.
It isn't a bank account and it doesn't automatically match retained earnings on the corporation's financial statements — it's a tax-specific tracking mechanism, calculated year over year.
Eligible vs. Non-Eligible Dividends
| Eligible Dividend | Non-Eligible Dividend | |
|---|---|---|
| Draws on | The GRIP balance | Income not taxed at the general corporate rate |
| Personal tax treatment | Generally more favourable to the shareholder, reflecting that more corporate tax was already paid on the underlying income | Generally less favourable, reflecting the lower corporate-level tax already paid |
| Typical source | Income taxed at the general corporate rate, or eligible dividends received from other corporations | Income taxed at the small business rate |
The mechanism is designed to roughly offset the corporate tax already paid — income taxed more heavily at the corporate level is meant to come with a bigger personal tax break when it's eventually distributed, and vice versa.
How a GRIP Balance Builds and Shrinks
Adds to the pool:
- Corporate income taxed at the general rate rather than the small business rate
- Certain eligible dividends the corporation itself received from other corporations
Draws down the pool:
- Paying eligible dividends to shareholders, up to the available balance
Because the balance moves every year with the corporation's income mix, a GRIP calculation from two years ago isn't a safe number to rely on today.
Why This Matters to Shareholders
Designating a dividend as "eligible" isn't optional paperwork — it changes how much tax the shareholder personally pays on that dividend. If a corporation designates more as eligible than its GRIP balance actually supports, CRA can treat the excess less favourably, which is exactly the kind of surprise a dividend designation is supposed to avoid, not create.
This is why the GRIP balance should be checked before a dividend is declared, not calculated afterward to see what happened.
Common GRIP Mistakes Ontario Corporations Make
- [ ] Designating a dividend as eligible without confirming the current GRIP balance first
- [ ] Failing to update the GRIP balance after a CRA reassessment changes the corporation's taxable income for a prior year
- [ ] Assuming GRIP transfers automatically and cleanly in every reorganization or amalgamation without reviewing the mechanics
- [ ] Relying on last year's GRIP figure instead of recalculating after the current year's income mix is known
- [ ] Confusing the GRIP balance with the corporation's accounting retained earnings
GRIP Planning Around a Sale or Reorganization
A business sale, an asset sale followed by a wind-up, or a corporate reorganization can all change a corporation's GRIP position — sometimes significantly, if a sale generates income taxed at the general rate. These are exactly the moments when legal and accounting advice should be coordinated, since dividend timing decisions made during a reorganization can affect shareholders' personal tax for years afterward.
Frequently asked questions
Does every private corporation have a GRIP?
Only corporations that could realistically pay eligible dividends need to track one closely — mainly CCPCs and other private corporations. Public corporations and their subsidiaries generally operate under different eligible-dividend rules.
What happens if I pay an eligible dividend that exceeds my GRIP balance?
CRA can apply less favourable treatment to the excess portion. Before designating any dividend as eligible, confirm the current balance with your accountant rather than assuming the prior year's figure still applies.
Is GRIP the same thing as retained earnings?
No. Retained earnings is an accounting concept from your financial statements; GRIP is a separate, tax-specific notional account that often doesn't match your retained earnings balance at all.
If my corporation has only ever paid non-eligible dividends, do I need to track GRIP?
It's still worth reviewing periodically, particularly if the corporation's income mix could change — for example, after selling assets that generate income taxed at the general rate rather than the small business rate.
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